What does Ethical Finance mean?

What is Ethical Finance?

As the world is witnessing unparalleled student uprising across university campuses, do we understand the reasons beyond the political nature of these protests?

Ethical financing based on Islamic Finance principles has always sought to avoid in investing in companies whose primary activities or industries that include weapons, alcohol, pork, gambling, adult entertainment, tobacco and certain financial services.

Decoding University Investments

To grasp the root cause of these protests and their ethical implications, it's crucial first to understand the mechanics of university investments.

Universities manage substantial financial assets through endowments, funds donated by alumni, philanthropists, and other benefactors. These endowments are invested in stocks, bonds, and real estate to generate returns that support scholarships, research, university infrastructure, and campus development.

The goal is to grow these funds to ensure these universities' long-term financial health and sustainability.

However, these investments can sometimes be controversial, particularly when they involve companies engaged in activities that raise ethical concerns.

This is where the crux of student activism comes into play.

The Push for Ethical Divestment

Students across the country are demanding that their universities not use endowment funds to invest in companies that supply military equipment or technology.

For example, many defence companies have significant contracts with a number of countries across the world, supplying advanced military equipment in ongoing conflicts. Additionally, some technology companies provide cloud computing services and technology infrastructure that are seen as supporting military operations.

These investments have sparked ethical concerns among students who argue these companies have played a significant role in conflicts that have resulted in dire humanitarian consequences and the tragic death of innocent civilians.

Prominent universities like Columbia, with an endowment of 13.6 billion, and Harvard, with an approximately 50 billion USD endowment, emphasise their commitment to ethical practices and social responsibility.

However, the substantial investments these universities have made from their endowments to companies linked with certain regimes have prompted students to demand a reassessment of their investment strategies.

Universities' Mixed Reactions

Universities have responded with mixed reactions to student demands for divestment from such companies. While some institutions have taken steps to review their investment portfolios, many have resisted these calls.

For instance, despite significant pressure, institutions like Harvard and Columbia have not committed to divest. These universities argue that divesting from specific companies could jeopardise the financial health of their endowments.

They contend that maintaining a diversified portfolio is essential to mitigate risks and ensure steady returns, which are crucial for funding essential university functions.

This brings us to a critical question that demands our attention:

Should financial considerations take precedence over moral value judgments in investments?

Lessons from History: The Anti-Apartheid Movement

To answer this question properly, it helps to look at previous student divestment campaigns.

During the 1980s, student activism on U.S. university campuses significantly advanced the divestment movement against apartheid in South Africa. Students demanded that their universities divest from companies doing business in South Africa, arguing that financial investments should not support a regime built on racial segregation and oppression.

Despite the complexities of managing endowments, many universities ultimately chose to divest, recognizing that their financial actions had broader ethical and social implications.

These student-run divestment campaigns were part of a growing movement against the South African government, which mounted significant international pressure and forced them to end their apartheid practices.

The anti-apartheid divestment movement demonstrated a moment in time when universities chose to make their political position clear despite the financial complexities this caused them.

The Moral Imperative: Students Lead the Way

Imagine a scenario where universities refused to take a stand on the issue of apartheid in the 1980s, and instead spoke only about the importance of generating financial returns.

Many student activists argue this is happening now.

They believe their universities are hiding behind the complexities of endowment management and the pursuit of financial returns.

Campus administrators would argue that their primary responsibility in managing endowment funds is to maximise returns, ensuring the long-term financial viability of their universities, which in turn supports their core mission of educating students.

But if this is the case, are we teaching students that financing does not have ethical considerations?

Regardless of where you stand on ongoing conflicts, it's clear these students have demonstrated the importance of taking a moral stand. They have made their voices heard and their position clear, urging their universities to align their financial practices with the values of a student body that is overwhelmingly uncomfortable with ongoing conflicts.

Universities must recognize they can’t continue to prioritise financial gains without addressing the ethical implications of their investments.

By doing so, they can set a powerful example and teach students that all actions, including financial decisions, have consequences.

In this instance, however, the students are the ones teaching us this lesson.